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The Irrational Fear of Cash and the Risks for Retail

January 15, 2021

This article originally appeared in Loss Prevention Magazine.

By Tom Meehan, CFI, and Jessica Pohlen

Across the country, it feels like there is a push from retailers to eliminate cash. We see signs saying “exact change only” posted at cash registers due to the nationwide coin shortage, and there are even marketing efforts with the slogan “contactless payment options now available” popping up in commercials. Business owners are all too familiar with the challenges of accepting cash. Making sure you have the proper float for your employees, coordinating cash-in-transit (CIT) pick-ups, and reconciling point-of-sale (POS) data with bank deposit information can be difficult, not to mention the risk of internal shrink. Add on the recent and exponential growth in public concerns about the safety of using cash at all, and cash management really has become a challenge, rather than a solution.

Universal concerns about the safety of using cash at all has retailers seizing the moment to push for cashless payment systems. The changing attitudes toward cash affects more than just the traditional retailer. This impacts any business where cash is transacted, from convenience stores and restaurants to stadiums and airports.

Though the coronavirus pandemic has significantly changed nearly every part of our lives, the fear of cash itself is irrational. Now that the legitimate concern around being in public spaces has been validated, we understand the transmissibility of the virus that causes COVID-19 much better than we did six months ago. Likewise, retailers shouldn’t be too quick to disassemble their cash management infrastructure. After all, the fear of cash is a by-product of an unprecedented moment in history.

While one of the biggest priorities to avoid the spread of the virus that causes COVID-19 is to reduce contact between people as much as possible, it is possible to take this too far. If retailers aim to eliminate cash from their business operations, they are not only alienating a large proportion of their customers, in many cases, but also embarking on a rapid digitization that opens the door to a great deal of security risk unique to digital payments, such as fraud or data breaches.

The approach doesn’t need to be all or nothing. The most critical piece currently missing from the retail leader’s tool belt is an awareness of options and best practices to conduct all payment transactions from a safe distance. With the rampant growth of technology in the retail space, there are many solutions for retailers to conduct cash transactions while protecting the health of both customers and employees.

COVID-19 Has Changed Consumer Behavior

Since COVID-19 was first declared a national emergency in March of this year, fear has been the driving force behind many of the changes we have seen in the retail industry. A healthy dose of fear can be incredibly beneficial—studies have shown that safety measures such as wearing masks and washing our hands more frequently can slow the spread of the virus.

Retailers were quick to react and extremely proactive in adopting increased health and safety measures, such as frequently sanitizing high-touch surfaces like shopping carts and checkout keypads, in their stores. Many loss prevention teams have eliminated reusable cash deposit bags, switching to single-use tamper-evident cash bags to protect their employees from unintended exposure to the virus. However, some of these safety procedures have created a psychological impact on consumers, making them concerned about leaving home for any nonessential purchases. Likewise, the varying levels of enforced protection from retailers have employees struggling to feel safe at work, where they must defuse confrontations with customers unwilling to wear masks or practice social distancing.

Customers enter a store with the goal of getting in and out as quickly as they can. Employees go to work with the hope that they can minimize their contact with others as much as possible. These anxieties, although perfectly understandable, have a real impact on how people view not just your store but the retail experience as a whole.

Making Customers Feel Safe in Stores

In the new age of the pandemic, retailers have a greater responsibility than ever before to make their customers feel safe when they enter a store. Of course, retail loss prevention experts are familiar with all the threats that exist beyond the coronavirus, like shoplifting, internal theft, privacy risks, compromised data, and more. But safety measures to protect customers and employees from exposure to the virus are much more visible and have a direct impact on whether a customer even enters your store at all.

Recently, I had my own experience going to a store about an hour from where I live to return an item I had purchased online. As I entered the store, mask on and staying six feet away from others, I saw that several people in the store were not wearing masks. I felt so uncomfortable by the situation that I just left without completing my return. I found myself wondering, “Why isn’t this retailer taking steps to make me feel safe?”

I’ve never met anyone who intentionally goes to a store in the worst area of town, because they see it as a risk to their safety. The odds are that nothing will happen, but consumers will think twice before going, and they certainly will not linger for any longer than necessary. Similarly in this new paradigm, why would I risk shopping in-person, even if I used to enjoy the experience, if I don’t feel safe going in the store at all?

Limited store occupancy, plexiglass barriers between the cashier and the customer, social distancing indicators on the floor, one-way aisles, and the avoidance of touching common items like cash, payment cards, and even the receipts—we have become so used to these protocols that not seeing them in a public space can even deter people from entering these spaces at all. Perceived safety, or security theater, is just as important as the actual safety of the situation. When it comes to COVID-19 strategies like masks and social distancing, this security theater is even more valuable. Enforcing these protocols not only helps reduce the spread of the virus but also shows your customers that you care about their health.

A study from McKinsey found that in-store foot traffic will only return when people trust that these spaces are safe and virus free. This isn’t limited to increasing disinfecting routines or mandating masks for all customers and employees: retailers must consider the shopping experience as a whole. Contactless options, such as pick-up lockers, curbside pickup, and self-checkout, have become more popular than ever, particularly among millennial and Gen Z shoppers. As retail stores shift operations to accommodate more self-checkout or scan-and-go transactions, retail leaders are racing toward the technologies they know in hopes of reengineering the transaction experience.

Security experts are even looking at how to adapt technology outside of traditional loss prevention to the new demands of the retail space. For example, thermal imaging cameras have hovered in the periphery of retail loss prevention for a few years. With temperature screening as one of the most common public safety measures in a COVID-19 world, many retailers are looking to thermal imaging as a solution for screening customers’ temperatures at the entrances to their stores.

Given advancements in security technology, customers’ perception of their safety in stores hasn’t been a major challenge for retailers for at least a couple of decades. With the pandemic challenging customers’ sense of safety, it is important that we rely on our security expertise to find solutions that are as effective at protecting everyone in the store as they are at signaling security theater. Both reassure customers about in-store safety and provide effective protection for everyone in the store.

Implementing Effective Safety Measures, Not Just Popular Ones

As we continue to learn about the most effective health and safety measures to implement in public spaces, we’re also finding that some of the methods pushed early on in the pandemic aren’t exactly logical. For example, one-way aisles were widely adopted in essential retail businesses as early as April. Walmart, Kroger, and other retailers led the initiative to implement directional arrows to guide customers through the store layout.

This strategy was created with good intentions—to reduce the chances that customers would run into each other while moving through store aisles. However, many customers became frustrated by how one-way aisles extended the time they spent in the store and put them at greater risk for exposure to the virus. In May of this year, the supermarket chain Giant announced that they would no longer enforce one-way aisles in their stores, in response to customer concerns about increased shopping times.

Like one-way aisles, some retailers have started using a collection tray to accept and return cash, instead of physically touching the coins and notes. While the intention is noble, unless exact change is given, both the consumer and the employee will touch the money that was handled by the other. The only potential positive in this experience is the perceived effort on behalf of the retailer.

We’ve seen many technological solutions to address widespread health concerns, such as thermal imaging cameras that measure body temperature to QR codes replacing physical menus at restaurants. However, when we look closely at public concerns about the transmission of COVID-19, they really all come down to reducing shared touchpoints. Rather than overinvesting your resources in health and safety “trends,” look closely at your operations and your customers.

Cash Transactions Have Been a Casualty of the Pandemic

Along with public concern about the risk of exposure in stores, there is also a residual uncertainty about the risk of viral transmission from cash. The confusion about the safety and hygiene of cash transactions is in part due to a misrepresented comment from the World Health Organization (WHO) in March about the possibility that banknotes could transmit COVID-19. At the time, the British media immediately reported that the WHO stated that cash could spread the virus. In actuality, the WHO had stated that everyone should wash their hands after handling money, especially if they are handling or eating food, as a general practice of good hygiene predating the pandemic.

Although this comment was clarified, we are still seeing misplaced fears about cash. This type of public concern isn’t new. Throughout American history, public health crises, such as the smallpox outbreaks in the nineteenth and early twentieth centuries, have blamed cash for spreading disease. However, back then we didn’t have the science to understand basic hygiene, let alone the resources to study cash as a vector for transmission.

Since that misreported WHO comment, central banks and many other cash advocates have funded research, released reports, and launched campaigns to reassure the public that cash is safe. LendEDU, an online marketplace for financial products, tested a range of high-contact surfaces, such as door handles, park benches, and public restrooms, along with credit cards and cash, and found that both cash and coins carry far less bacteria than credit cards. Studies have found that the virus that causes COVID-19 can live on plastic for up to seventy hours, compared with twenty-five hours for cardboard.

The WHO announcement and other articles may have affected the way consumers behave at checkout, but not as much as some would care to believe. In fact, the Federal Reserve Bank of San Francisco reported that 70 percent of survey respondents are not avoiding using cash during the coronavirus pandemic. In fact, while in-person payments have decreased since March, 59 percent of people still use cash during COVID, maintaining a similar rate of cash usage in person compared to prepandemic times.

Increased Expectation of Contactless Payments

However, it’s clear that consumers are still concerned about handling money. According to a study from Rapyd, a global payments company backed by digital payment giant Stripe, 60 percent of consumers surveyed plan to use digital or other contactless payments in the future, rather than cash and coins, because of the COVID-19 virus. Although the majority of respondents did not support eliminating paper money and coins entirely, we can see that consumers are expecting a rapid adoption of digital payments across the retail space.

Contactless payments and digital wallets are already incredibly popular throughout Europe and Asia, but this digitization could take years for the United States. Consumer adoption of digital payments has been expected to take years. But COVID-19 ramped that up into mere weeks. In Latin America, 13 million people made their first-ever e-commerce transaction by the end of March of this year.

Cash Is Not a Bygone Payment Method

Given the popularity of digital payments with millennials and Gen Z, whose decisions will shape the future of the payment ecosystem, sometimes it really does look like we are on the path to a fully cashless society. Rapid digitization throughout the retail industry makes the shift to digital payments seem even more urgent.

The retail push for cashlessness has gained enough traction that many municipal and state governments are using legislation to fight it. In 2019, cities like San Francisco and Philadelphia, along with the state of New Jersey, banned merchants from accepting only card and contactless payments. New York City followed in their footsteps earlier this year, passing a bill to ban cashless businesses.

The Most Accessible Form of Payment

There is a major reason we cannot eliminate cash as a payment method: nearly 20 million (6 percent) Americans are unbanked, meaning they live in a household holding no accounts with formal, insured financial institutions. Another portion of Americans are underbanked, which means they have at least one account at an insured institution, but they also use financial services outside of the banking system, like payday loans or cash-checking services. Combined, these groups make up approximately 25 percent of the population: that’s tens of millions of Americans, often low-income people and minorities, who rely on cash as their primary form of payment.

By definition, a cashless system would exclude millions of people, who often simply cannot afford to be part of the American banking system. Most major banks have high barriers to entry, such as requiring checking and savings accounts to carry a minimum balance to avoid service fees. Combined with overdraft fees, ATM withdrawal fees, and even debit card swipe fees, it can be very expensive to have a bank account at all. In fact, most unbanked people today used to have bank accounts but closed them so that they wouldn’t have to pay unexpected fees.

The majority of these issues cannot be resolved on an individual level. It’s not about changing the consumer mindset about bank accounts but rather addressing large structural issues that prevent these spenders from having regular, affordable, and worry-free access to a bank. If cash continues to be de-incentivized by retailers, unbanked or underbanked individuals without access to the latest fintech could basically become second-class citizens, unable to even pay for groceries if stores like Amazon Go become the norm.

Misconceptions about the Popularity of Cash

Only older generations like to use cash. False. Cash use is just as high among individuals aged eighteen to twenty-four—the prized Gen Z market—as it is among those fifty-five and older. Gen Z also nearly doubled the average amount of cash they hold from $20 in 2018 to $39 in 2019.

Consumers don’t use cash because they prefer to shop online. False. The increase of online payments has been extremely slow, growing from 3 percent in 2016 to just 4 percent in 2019. Furthermore, the significant majority of payments are still being made in person. Cash remains the most-used in-person payment, making up 35 percent of in-person transactions.

Everyone is switching to online payments. False. Seventy-five percent of survey respondents did not switch from in-person to online or phone payments due to the coronavirus; those who switched did so primarily for restaurants, fast-food, and big-box stores.

How Society Views Cash Could Put Retailers at Risk

The public concern for health risks during a pandemic isn’t the only factor behind cash’s poor public image. For retailers, cash can be more of an inconvenience than a benefit. There are many reasons behind this perspective—cash management is an added expense, cash transactions are slower than debit and credit card or digital payments, and cash is just a lot heavier than a virtual ledger of digital payments.

The sudden increase in civil unrest over the summer introduced another obstacle to retailers and how they manage cash—how to protect the cash they keep in their stores. In our discussions with several retailers, we’ve found that most have not changed their core cash handling processes. However, many have changed the amount of money that they’re keeping in the till, as a preemptive measure against looters or other types of civil unrest that could affect their stores.

Keeping the opening till amount low requires more frequent cash drops into a smart device or through more frequent pick-ups with the retailer’s CIT partner, in order to reduce the amount of cash at risk for loss or theft. While this keeps retailers’ cash safe, it also affects their business operations. If they don’t have cash on hand to make change, do they have the digital infrastructure to take debit and credit cards or other cashless payments?

The Risk of Rapid Digitization

Rapid digitization has been a consistent challenge for organizations across all industries looking to keep up with their digitally native competitors. For years now, both the retail and banking industries have been on a sort of digitization roller coaster—constantly in pursuit of technology to varying degrees of success.

With the shift in consumer behavior toward online shopping, e-commerce has come under an even stronger microscope than ever before. Organizations outside of retail are looking at e-commerce as an example of how to move their business operations online, harnessing software like Zoom to bridge the gap between their employees and customers at home for virtual appointments. The progression to a more widespread use of technology in different areas of our lives has been happening slowly over the past few years, only to be expedited by the unprecedented crisis of a pandemic in the age of globalization. More than ever before, we need technology to keep us connected.

This transition has moved even more quickly than many retailers are prepared for, opening the door to fraud. COVID has become a force multiplier of digitization, increasing both merchant expectations and consumer demand in ways we haven’t imagined. This creates a wide variety of challenges, including cyber risk, consumer adoption risk, training changelessness, life cycle management, and resource availability, to name a few.

Some retailers have been slow to adopt digital payments. The pandemic has forced them to take what would normally be an eighteen-month rollout and condense it into a one-week adoption. This poses a significant risk to contactless fraud, customer friction, shrink, and employee error. By making payments digital, retailers open themselves up to the risk of bad actors gaining access to their systems in a whole new way. With cash, the risk is contained to the physical store. By moving online, this information could be accessed by anyone, anywhere in the world. One of the major challenges for retail cyber security is protecting sensitive data, like customers’ delivery addresses and phone numbers. When this information is compromised in a data breach, it mostly affects the retailer. While a data breach can obviously be a huge setback for the retailer’s bottom line, their reputation among customers isn’t as impacted. The customer doesn’t lose money.

But if payment information is compromised, this hurts customers directly. Because of a data breach that gave bad actors access to their credit card information, customers can face problems like identity theft and credit card fraud, which can irrevocably damage a retailer’s public image. And a good reputation is something that no amount of money invested in technology can buy.

Digital payments can be much more expensive than cash for retailers. The processing fees for credit cards and digital payments cost retailers more, since these fees are charged per transaction, rather than per cash pickup with a CIT company. In the long term, processing digital payments can become much more expensive than the costs of cash management, especially for retailers who want to transition the majority of their payment processes to digital. For smaller businesses, their margins can be seriously impacted by taking more digital payments. Contactless and mobile payments, while convenient for the customer, put the burden on the retailer to install new technology in their stores. New POS systems aren’t cheap, and the fees to process all these new digital payments can add up, reducing a business’s profit more than they anticipated.

The Resilience of Brick-and-Mortar Sales

There is a risk of “over-digitizing” retail, beyond the numbers and dollar signs. Despite the unexpected changes in the retail industry brought on by the COVID-19 pandemic, the industry is not much different than it was even just a few months ago. Retail is still predominantly a brick-and-mortar market. Over-digitizing retail, without giving consumers enough time to adapt to the “new retail,” could alienate those who are used to the near-immediate satisfaction of in-person shopping.

While online retailers are even more visible than before, retail has kept up with e-commerce for decades. Many retailers have transformed their stores into experiences, which cannot be replicated online. Brick-and-mortar stores offer in-person customer service, such as technical experts and advisor programs, to facilitate long-term customer relationships.

By the end of the third quarter of this year, e-commerce made up 16.1 percent of all retail sales in the United States, a small increase from 11.8 percent in the first quarter of this year. In fact, the share of e-commerce sales in the midst of the COVID-19 pandemic has not changed from its share of retail sales in 2019, reported as 16 percent based on data from the US Department of Commerce.

Although online shopping is convenient for consumers, many people prefer the satisfaction of purchasing an item in store. Buy online, pick up in-store (BOPIS or sometimes BOPUS) sales went up over 250 percent in August 2020, compared to August 2019. BOPIS allows shoppers who are concerned about the safety of in-store shopping to have the best of both worlds—the convenience of shopping online and the almost immediate gratification of picking up their purchase at the store.

A survey from Adobe Analytics also found that 30 percent of respondents prefer BOPIS over delivery, giving brick-and-mortar retailers another edge over e-commerce. As states reopen businesses, e-commerce sales are slowing down while brick-and-mortar retailers continue to improve BOPIS and in-store health and safety measures to protect both customers and employees.

BOPIS isn’t a new phenomenon in any industry. In fact, we’ve seen this approach work quite successfully in another field: quick-service restaurants (QSR). For years, QSRs have relied on contactless transaction methods such as drive-thru to drive their businesses. By catering to the consumer’s demand for convenience, the QSR industry has evolved beyond drive-thru to even more efficient processes, such as integrated mobile-order systems that connect the kitchen to the customer pick-up window. Although this technology began in the QSR world, these strategies can be implemented in other industries as well, just as we’ve seen with BOPIS in the retail space.

Though brick-and-mortar retail is far from dead, it will never be the same. Digital transformation is moving much more rapidly than we predicted, and we will all have to move with it. As digitization of the retail industry continues, we need to include cash in this evolution as well.

Why Forced Innovation Doesn’t Work

Innovation is one of the driving forces in the evolution of retail, along with basically every other industry out there. Organizations want to stay ahead of their competitors, so we naturally gravitate toward innovation as the means to do so. But when we view innovation as the ultimate goal, that’s when it becomes forced, instead of a natural evolution. As soon as we set innovation as our goal, the only possible results are either success or failure. And from there, innovation no longer becomes about solving problems, like looking for inefficiencies, simplifying processes, or making more cost-effective decisions. In fact, when we find ourselves focused on innovation purely for the sake of it, we can even lose sight of the issues unique to our own organizations.

One of the most popular innovations in retail in recent years is self-checkout. It’s an incredibly attractive technology. You can reduce the amount of employees needed at cash registers, freeing up your team to focus on customer service or inventory control, and it’s very appealing to customers. When considering implementing technology like self-checkout, retailers typically stop at the question, “Can it be done?” But there are more important questions, such as, “Is it scalable? Will it enhance the customer experience? Will it help us earn more?”

Self-checkout isn’t a one-size-fits-all solution. For retailers who sell high-value merchandise such as electronics or luxury handbags, it can obviously become a huge risk to their asset protection strategies. Retail loss prevention experts should look at new technology, like mobile POS systems and RFID tracking, with a similar critical eye. Ask yourself, “Will this technology add value to my organization in areas that need it?” If this solution doesn’t resolve one of your business’s problems or prevent an issue from happening at all, then you might have fallen into the trap of forced innovation.

Technology Can Provide Cash Security for Both Consumers and Employees

All of this isn’t to say that technology is the enemy. In fact, technology has driven the retail industry to evolve in ways we haven’t expected, from using RFID technology to improve inventory control to creating smart safes that count and validate cash, streamlining the CIT and cash reconciliation process.

When we’re looking at how to improve retail cash management, it’s not a binary question of staying analog or going completely digital. Technology works successfully when it’s used as a tool to improve our existing processes, not to replace the human element of retail, even in the age of the coronavirus. Although many retail technologies have a reputation of replacing employees, most of these solutions can create a hybrid experience.

Imagining a New Checkout Process

Retailers are now looking into solutions that facilitate cash transactions, similar to the card payment terminals just outside the plastic barriers at cash registers in stores. With this type of cash processing technology, cash transactions can become just as seamless as cashless payments, eliminating retailer concerns around inefficiency. These newer terminals are often constructed with easily cleanable surfaces that are meant to undergo frequent sanitation, compared to the keypads that have been routinely destroyed from cleaning solutions under COVID-19 sanitation recommendations.

For retailers who want to reduce physical interaction as much as possible, we can look at the “assisted self-checkout” process, where the cashier still rings up the customer’s purchase, but the payment step is all on the customer. This process is faster than “pure” self-checkout, which takes longer because the customer has to scan their own items and then pay at the end. Assisted self-checkout uses POS cash recycling to give customers contactless payment options beyond debit and credit cards or digital payments. If a customer wants to pay with cash, they can insert paper money or coins into the machine, which will also give them their change, just as we see at typical self-checkout terminals.

Contactless Cash Transactions as a Long-Term Solution

By leaving the payment step entirely in the hands of the customer, employers are able to eliminate the need for employees to handle cash or touch payment terminals at all. POS cash recyclers automate transactions, so cashiers never touch the cash provided by the customer, and likewise, customers are receiving their change from a machine rather than from someone’s hand. This also offers an incredible benefit to loss prevention because it removes cash from the hands of cashiers and gives the LP team real-time visibility of the cash stored at each till, centralizing cash responsibility.

This type of technology widely adopted in Europe has failed to make major traction in the US thus far, but that is set to change with COVID. With solutions like assisted self-checkout, retailers can both minimize touchpoints and improve the customer experience in a sustainable way that will last beyond the COVID-19 pandemic.

What Can Retailers Do Next?

While COVID-19 is a temporary challenge we are all facing, it’s impossible to deny that this pandemic will have permanent effects on our world, particularly within the retail space. As we continue to adapt our lifestyles to the evolving post-pandemic landscape, we must look toward the long-term future of retail, rather than only seeking out solutions for short-term problems.
As with the evolution of retail as a whole, retailers still have to adapt their operations based on consumer desires. This means making adjustments for customers, many of whom prefer the in-person retail experience but need reassurance that retailers are taking health and safety concerns seriously.

While the fear of cash itself is irrational, it is imperative for retailers to stay up to date with cash management trends, both within the industry and among consumers. By looking at cash as another part of customer service, rather than a necessary evil, retailers can implement solutions that not only make the process more streamlined but also improve the customer experience, now and in the far future.

Tom’s column is featured in every issue of Loss Prevention Magazine. To subscribe to the printed version of the magazine and enjoy other great content, visit